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EC Competition Law
Associate professor Olav Kolstad
Department of Private Law
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What is competition law?
• Competition law exists to protect the process of
competition in a free market economy
– A system where the allocation of resources is determined
solely by supply and demand in free markets
• Competition wanted because of the market result
it produces
– Efficiency
– Low prices
– Innovations
• Competition rules limits the freedom of the market
players to protect the process of competition
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Competition policy and competition law
• Competition policy
– Describes the way in which governments take measures to
promote competitive market structures and behaviour
– Formulation of goals
» Competition policy and science
• Competition law
– The legal rules implementing the competition policy
– Law and economics
• Developing competition policy through case law
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Economic efficiency
- main objective of competition policy
• Competition gives the best utilisation of scarce resources
– Perfect competition v monopoly
• Perfect competition
– Pareto optimal use of resources
» None could be made better of without someone being made
worse of
» Consumer welfare maximized
– Productive efficiency
» Constant pressure on costs
» Cost reductions is the only means whereby firms can stay in
business and increase profits
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• Monopoly
– Leads to an inefficient allocation of resources
» Quantity supplied less the quantity which would be
supplied in a competitive market
– Deadweight loss
» Loss of consumer surplus which is not turned into profit for
the producer
– X-efficiency
• Perfect competition, monopoly and competition in
the real world
– Workable competition
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Other goals of competition policy?
• Preservation of liberty
• Fair competition
– Promoting small and medium sized undertakings
• Socio-political issues
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Social policies
Employment
Industrial policy
Environment
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The objectives of EC competition law
• ECJ: Teleological interpretation
• Article 2 EC Treaty:
– The Community shall have as its task, by establishing a
common market and an economic and monetary union and by
implementing the common policies or activities referred to in
Articles 3 and 3a, to promote throughout the Community a
harmonious and balanced development of economic activities,
a high level of employment and of social protection, equality
between men and women, sustainable and non-inflanatory
growth, a high degree of competitiveness and convergence of
economic performance, a high level of protection and
improvement of the quality of life, and economic and social
cohesion and solidarity among Member States.
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• The common market is not an end in itself but a
means of achieving the promotion of matters
listed in Article 2
• Common market
– An area where direct and indirect barriers to trade between
Member States are removed (internal aspect) and
– a common import and export policy adopted toward the
outside world as far as commercial transactions are concerned
(external aspect)
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• Internal market
– the internal aspect of the common market
– Defined in Article 14:
» The internal market shall comprise an area without
internal frontiers in which the free movement of goods,
persons, services and capital is ensured in accordance
with the provisions of this Treaty.
• Articles 3 sets out the ”activities” of the
Community, including
– (g) a system ensuring that competition in the internal market is
not distorted
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• The role of competition policy as an instrument of
single market integration absolutely crucial to
understanding EC competition law
– Regulates conduct of undertakings threatening the
establishment of an internal market
– Rules on ”free movement” directed towards Member States
• EC competition law serve to masters
– Competition
– Single market integration
• Thus: efficiency and allocation of resources a
central concern, but not the sole goal
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• Other objectives?
– The objectives in Article 2
– Interface with other policies
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ECJs concept of competition
• ECJ has not relied upon any particular competition
”ideology”
– But economic arguments/theories/models decisive for the application
of the competition rules in individual cases
• Definition in Metro (case 26/76)
– The requirements contained in Articles 3 and [81] of the EEC Treaty
that competition shall not be distorted implies the existence on the
market of workable competition, that is to say the degree of
competition necessary to ensure the observance of the basic
requirements and the attainment of the objectives of the Treaty, in
particular the creation of a single market achieving conditions similar to
those of the domestic market. In accordance with this requirement the
nature and the intensiveness of competition may vary to an extent
dictated by the products or services in question and the economic
structure of the relevant market sectors.
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• The ECJs concept of ”workable competition”
related to what competitin is inteded to achieve in
the Community context
– Not one of the concepts of ”workable competition” found in
economic theory
» But influenced by the theory
• Concept of competition in the Merger Regulation
compared:
– Prohibits concentrations creating or strengthening a dominant
position ”as a result of which effective competition would be
significantly impeded in the common market”
» Article 2(2) and (3)
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How to pursue the goals?
• Prevent agreements restrictive of competition
– Horisontal agreements (Among competitors)
– Vertical agreements (between parties at different levels of the
production or distribution chain)
• Control market power and its abuse
• Control oligopolistic markets
• Prevent mergers which lead to a concentration in
market power
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The Competition Rules – an overview
• Article 81
– Article 81(1) prohibits agreements or concerted practices
restrictive of competition is
– According to Article 81(3) Article 81(1) “may … be declared
inapplicable”
• Article 82
– Forbids dominant undertakings to abuse their market power
• Merger Regulation
– Prohibits concentrations significantly impeding effective
competition
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The sources of EC competition law
• The Treaty Articles
• Regulations
– Merger regulation
– Block exemptions
• Judgements
– European Court of Justice
– Court of First Instance
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Commission notices and guidelines
Commission decisions
Annual reports from the Commission
Other documents
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Some basic concepts
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Market power
Market definition
Barriers to entry
S-C-P paradigm
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The concept of market power
• Competition law concerned first and foremost with
the problems that occur when a firm or two or
more firms possess market power
• A firm or firms that possess market power can
enjoy some of the benefits available to the true
monopolist
– Market power presents undertakings with the possibility of
limiting output and raising price, which are clearly harmful to
consumer welfare
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• Ways in which market power is manifested
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Collusion and cooperation between competitors
Unilateral conduct; Abuse of dominant position
Structural changes; Merger Control
Split up off monopolies
• The legal test of market power; per se or rule of
reason?
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Market definition
• Decides the factual framework for the analysis of
market power
– The relevant market
– Economic concept: Economic or econometric analysis of the
facts
• An analytical tool, not an end in itself
– ”a tool for aiding the competitive assessment by identifying
those substitute products or services which provide an
effective constraint on the competitive behaviour of the
products or services being offered in the market by the parties
under investigation”
• But have normative implications
– The implications of a broad or limited definition of the relevant
market
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• The market definition focus on the market as it is
today
– Identify competitive restraints from actual competitors, does
not include potential competitors
• The European Commission’s Notice on the
Definition of the Relevant Market
– Extract of the Commissions practice or experience
– Without prejudice to the case law of the Court of First Instance
and the ECJ
– But: In practice an extremely an influential guide
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• The “relevant market” the product of three
different market dimensions
• The relevant product market
– Interchangeability: to what degree are other products
substitutes to the product in question?
• The relevant geographic market
– The area in which the actual product is sold; the relevant
geographic market
• Temporal market
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Barriers to entry
• Barriers to entry hinders the emergence of
potential competition which would otherwise
constrain the incumbent undertaking
• Crucial when determining market power
– May have high market shares but no market power if there are
no barriers to entry
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Analysing barriers to entry
• Market definition and entry by production
substitutes
• Market conditions and historical entry
• Assessment of absolute cost advantages
• Assessment of strategic (first mover) advantages
• Vertical foreclosure and exclusion
• Predatory behaviour
• Assessment of entry impediments
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S-C-P paradigm
• Structure
• Conduct
• Performance
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Enforcement – an overview
• Enforcement by the Commission
– The legal basis
» Article 85, cfr. Article 83
» Regulation 1/2003
• Enforcement by national authorities
– Regulation 1/2003
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• Enforcement by national courts
– Article 81(1) and 82 have direct effect
» Case 127/73, BRT v SABAM
– After Regulation 1/2003: Also Article 81(3)
– Remedies in national courts
» The enforceability of agreements
» Actions by third parties
• Damages
• Does Community law require a national Court to ensure that a remedy
is available?
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The scheme of Article 81
• The prohibition in Article 81(1)
• Nullity, Article 81(2)
• Exemption, Article 81(3)
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Article 81(1) – the elements
• The meaning of “undertaking”
• Forms of co-operation caught
– The meaning of agreement
– Decisions by associations of undertakings
– Concerted practices
• “Object or effect the prevention, restriction or
distortion of competition”
• Effect on trade between member states
• De minimis
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The concept of an “undertaking”
• Article 81 (and 82) applies only to “undertakings”
– Undertaking not defined in the EC Treaty
• ECJs definition of an undertaking:
– “the concept of an undertaking encompasses every entity
engaged in an economic activity regardless of the legal status
of the entity and the way in which it is financed”
» Case 41/90, Höfner and Elsner v Macrotron, para 21
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• “Every entity”
– The legal form of the entity irrelevant
» All kind of companies
» Persons
• Self employed
• Not employees (Opinion of GA Jacobs, case C-67/96, Albany)
» Associations
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“Associations of undertakings” directly caught
But can also be found to act as “undertakings”
Example: Co-operatives, P&I clubs
Exception: trade unions representing their members
– The entity’s engagement in “economic activity” decisive
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• “Economic activity”
– Any activity consisting in offering goods and services on a
given market
» Wide definition
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State bodies
• Exercising official authority
– ECJ: Article 81 does not apply to agreements concluded by
bodies “acting in their capacity as public authorities and
undertakings entrusted with the provision of a public service”
(case 30/87, Bodson)
– Includes tasks which are typical those of a public authority
– Such tasks are not of an economic nature
– Can to a certain extent be financed through fees of economic
contributions
• Engaging in economic activity
– Will be regarded as an “undertaking”
– How the public body is organised is not decisive
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• Bodies both exercising official authority and
engaged in economic activity
• Undertakings engaged in “services of general
economic interest”, article 86(2)
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Single economic unit doctrine
• Two or more separate legal undertakings can be
treated as on undertaking
– if the undertakings “form an economic unit within which the
subsidiary has no real freedom to determine its course of
action on the market, and if the agreements or practices are
concerned merely with the internal allocation of tasks as
between the undertakings”
» Case 30/87, Corinne Bodson
• Agreements between two undertakings within a
single economic unit not regarded as an
agreement “between” undertakings
– Escapes the prohibition in article 81(1)
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• The rationale:
– No freedom to take decisions regarding the market conduct
» Regarded as unilateral conduct
» May be caught by article 82 if the undertaking has a
dominant market position
– Internal allocation of functions
• The other side of the coin:
– If a subsidiary engages in anti competitive agreements the
mother company will also be regarded as part of the
agreement
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• The test of control
– If a parent company owns more than 50% of the shares in a
subsidiary interdependency is presumed
– Minority share holdings may also give control if combined with
specific rights attached to them
– One large shareholder and many small
– Joint control (50/50)
» Jointly controlled companies must belong to a single
group of companies to be regarded as part of one
economic unit
• The State regarded as one economic unit?
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The concept of an “agreement”
• ”Agreement”  widely construed
– It is sufficient if the undertakings in question should have
expressed their joint intention to conduct themselves on the
market in a specific way
» Alignment of the competition parameters available to them
• “joint intention”  a legally binding agreement not
necessary
– The form of no importance (oral, signed, unsigned)
– “gentlemen’s agreements”
– The agreement does not have to be exhaustive
» It is enough just to set the broad framework for the
undertakings market conduct
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• The engagement of the parties in the agreement
– It is enough to be partly engaged in the collaboration
» Breach of contract regarding parts of the agreement
– Passive “members”
– An excuse if an undertaking has been “forced” into a cartel?
• Collaboration through the establishment of a
company (joint ventures)
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• The situation when the agreement is terminated
– ECJ: It is sufficient if such agreements continue to produce
their effects after they have formally ceased to be in force
» Case 51/75, EMI Records Limited v CBS United Kingdom
Limited
– It is the effects of the agreement on the parties conduct that is
decisive for the application of art 81(1)
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“Decisions of undertakings”
• Collusion can take place through the medium of
an association: Directly covered by art 81(1)
– Makes it possible to hold associations directly liable
• Association
 widely defined
• Decision
 every statement made with the object or effect of influencing
the commercial behaviour of the association’s members
– Does not have to be binding (e g recommendations)
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“Concerted practices”
• A form of co-ordination where undertakings, without
concluding any sort of agreement or establishing a plan of
action, knowingly substitute practical co-operation between
them for the risks of competition
– This criteria avoids that situations where companies collaborate
without any kind of agreement but only on the basis of a common
understand falls outside article 81(1)
• It is contrary to the rules on competition for a producer to
co-operate with his competitors, in any way whatsoever, in
order to determine a co-operated way of action or to ensure
its success by prior elimination of all uncertainty as to each
others conduct regarding the essential elements of that
action
– ECJ, case 48/69, ICI v Commission
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Proving concerted practices
• Direct or indirect contact
• Meeting of minds or some kind of consensus
– Exchange of information
– Unilateral disclosure
– Public announcements
• Subsequent behaviour in the market
• Casuality
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Can a concerted practice be inferred from
circumstantial evidence alone?
• A question of the use of economic evidence in competition
cases
• Parallel market behaviour alone in itself not a concerted
practice
• BUT: It may however amount to strong evidence of such a
practice if it leads to conditions of competition which do not
correspond to the normal conditions of the market having
regard to the nature of the products, the size and numbers
of undertakings, and the volume of the said market power
– ECJ, case 48/69, ICI v Commission
• Oligopoly markets and economic evidence
– Joint dominance
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The distinction between “agreement” and
“concerted practices”
• Overlapping concepts
• No precise distinction
– And no use for a precise distinction
• “Concerted practice” important mainly where the
Commission or the Courts is forced to rely upon
circumstantial evidence alone
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